Working Capital – The current need of businesses today

Growth of business over the years has generated demand for small business loans. In the city of New York which is known as the hub for entrepreneurs, lenders today provide customized loans to the borrowers at competitive interest rates. There are various types of loans available today in the market. From secured to unsecured loans, equipment financing to small business loans, there are different types of loans to meet the requirements of definite and varied businesses. Working Capital is a type of small business loan that looks into the short term financing needs of the business.

Working Capital is best described as the difference between current assets and current liabilities. It is the liquid capital that is available in the business at that point of time. Liquid capital is the capital which can be easily converted to cash at the time of requirement. Working capital can be both positive and negative which again is related to the amount of debt the company has in the market. Companies with positive working capital has lot of liquid cash in hand hence is more prone to expanding and enhancing their business operations. Negative working capital signals more liabilities in the market putting the company to danger in the long run if not cleared early. Working capital is a part of the operating capital along with fixed assets such as equipments.

Short term- Working capital is a type of small business loan and is generally meant to fulfill the short term requirement of the businesses today. Especially in a city like New York which is crowded by entrepreneurs, working capital is used to obtain the current assets such as stock inventory etc which gets converted into cash within a short span of time. In comparison fixed capital has funds fixed for long term assets. Normally the duration of a working capital is 12 months but can also depend on the production process of the company and its operations.

Circulating Capital- Working capital keeps on circulating into cash and back to working capital like a cycle. The cash is used to get hold of current assets and once when the goods are produced and sold off, the current assets are again turned into cash. Hence working capital is sometimes referred to as circulating capital, going round and round like a circle.

Always- Being a short term capital, a business requires working capital, one of the most used small business loans, all the time. Working capital is a necessity to run a business productively due to its flexibility and its capability to turn into cash as and when required. Every business will want to have liquid cash at its disposal to expand and continue its business operations. Hence working capital is the need of the businesses in New York today.

Liquidity- Due to the flexibility that working capital provides, companies who have greater working capital can afford to take risks due to the security it brings. Being a small business loan, working capital can be converted to cash immediately if the situation demands so.

Fluctuation- Working capital is directly proportional to the level of production of the company. It varies with fluctuations in demand and supply, purchase and sale etc. Working capital consists of both variable and fixed capital and the variable working capital is the one that keeps on fluctuating.

Risk is low- Working capital is a type of small business loan. It involves less risk as because it continuously keeps converting to cash, back and forth as explained before. Working capital though involves financial or economic risks but that too is limited to a great extent as fluctuations in prices of products are not that severe. Again working capital is invested for a shorter period of time, bringing the risk factor invariably down. Investments in fixed assets on the other hand are tied for a longer period of time. It involves high risks too as with time fixed assets like machinery depreciate or become obsolete altogether due to technological innovations happening every other day. In a city like New York, the financial capital of the world which is filled by entrepreneurs, working capital is the need of the businesses today.